Friday, December 31, 2010

Crude Oil Unleashed.

Crude Oil has been steadily moving upwards from March 2009 lows of $33 to above $90 and is expected to touch three digits soon. Frankly I don’t know how high crude will be going but history shows that a gradual increase in Crude oil prices can be absorbed by the economy and things will be business as usual.

However a sudden spike in crude oil prices can falter an economy. So lets delve into why prices are touching the roof and how we can profit from it.

Supply And Demand:

Supply is controlled by OPEC to some extend. They produce around 40% of the world crude. They prefer the crude to be around $70.

Demand is increasing in Chindia (China and India). Consumption of US and Europe is not a major concern, but the increaseing demand in Chindia is growing rapidly with their flourishing economies. Improving fundamentals in US and Europe economic just adds to the demand for Crude.

Currency Fluctuations:

US dollar being the world’s reserve currency, Crude and other commodities are valued in US dollar in international markets. Any weakening of the US dollar increases the price of Crude. Currency fluctuation was not a major concern few years back. But with the Quantitative Easing (QE) programs adopted by US to bring itself out from the recession is weakening the dollar thus increasing the cost of crude.

War/Natural Disasters:

Whenever there is a war like situation or some natural disaster in or around oil producing nations, we have a spike in crude prices.

Severe Winter:

Due to global warming, climate across the world are getting extreme. Winter are becoming more severe and so the consumption of gas increases during the winter season.

Profitable Trading Opportunities:

We cannot control the Supply demand or the War/Natural Disasters. But we know that Demand will be increasing with flourishing world economy.

With QE2 program and a possible QE3 program we can expect the dollar to keep weakening for a sometime.

So the best way to create a profitable trade in crude will be to buy Crude in March-April (i.e. summer) and expect the crude to rise by December (i.e. winter). This will continue for a at least 2-3 years assuming that there wont be any recession in next 2-3 years.

Other way round ,we can expect crude price to go down in March/April and can short crude for now and cover our short positions in March-April and get long.

Wednesday, December 22, 2010

Tinplate - Target Rs 110

Tinplate is a Tata Steel company basically into tinning business, which is largely used for packaging into the agriculture segment. As we all know the growth in agriculture segment is happening very fast now and a company like Tinplate would definitely have an edge over the imported tin coming into the market today. They have already expanded their capacity to 380000 tones for the tinning and at the same time they have backward integrated themselves into the CR business where again I think the capacity has been expanded to 380000 tones and which is going live in this particular part of the financial year.

He further added, "From the prospective of seeing higher amount of growth in this particular company, the company is likely to see maximum amount of benefits going forward in the next financial year where the growth of backward integration, the integration will probable play its role in the coming year and there after. Most importantly with the Corus in, they are having access to the sophisticated technology, which is required in the European market, which would end up giving them higher amount of value addition in the business. The company is available at just 6x its price-earnings ratio and we believe that on an EPS of Rs 11-12 in the next financial year, the company should end up with a target of about Rs 110-120 levels. So current level onwards, I think there is a decent amount of appreciation in next 12-18 months."


S P Tulsian on Mahindra Satyam

Q: There are talks now that the Satyam shareholders are opposing the merger, they may hit the minority shareholders etc. What are you thoughts on the stock price, it had a bit surge yesterday?

A: If I take an independent view, it is always beneficial for the Mahindra Satyam shareholders and will be in profit if the company remains on a standalone basis and if it doesn’t merge with Tech-Mahindra. Right now everything is in place for Mahindra Satyam except for the margin front because you have your topline intact.

Maybe the employees are getting retained to the extent of about Rs 27,000-30,000 because you don’t have a cash flow problem. The company is cash rich having a balance of Rs 2,500 crore. What you need is a slight improvement in the margins which can take this share price to more than what it will show on an effective basis if it gets merged with Tech Mahindra or either way.

So it would be better that for the next couple of years, the company remains independent. The voice raised by the minority shareholders seems justified. Maybe for the Mahindra’s, it is in their interest to continue to cut the administrative cost or the controlling expenses as well as to have better ownership pattern of the merged entity. But for minority shareholders it is better if Mahindra Satyam remains as a standalone entity.


National Solar Mission.

Harness the power of the sun. That is the tall ambition of India. It wants to generate enough solar energy to take care of 12% of the total energy needs of India by 2022. Ambitions as lofty as the sun.

We tend to ridicule every target set by the Govt as it has the unbeatable, consistent track record of always missing it by huge gaps. And given the number of scams under probe in the country now, we cannot help but wonder whether the solar projects also reek of a new scam.

Last week, the Jawaharlal Nehru National Solar Mission, which aims to increase the country's solar capacity to 20GW by 2022, awarded 5MW solar projects each to 37 companies. The Govt received bids from 344 companies for solar projects spread across 14 states. Of this, 37 got selected – 7 are for solar thermal and 30 for photovoltaic.

Sounds good on paper, reads well too. But a little more digging reveals that this could largely remain merely on paper. The solar party risks getting crashed even before take off as those participating themselves could derail the whole cart. And the cost of the party being borne by the hosts, could very well jeopardize the entire partying.

The single biggest point of failure could be the bidding price for selling the power. To ensure that they get the bid, companies have quoted crazy and hence unviable prices. The lowest solar photovoltaic bid price is at Rs.10.95/kilowatt-hour v/s government's proposed rate of Rs.17.91. And the lowest solar thermal bid came at Rs.10.49/kilowatt-hour v/s government rate of Rs.15.31. At such huge discounts, how can the projects make money at all?

The cost of capital currently stands at Rs.14 crore per megawatt. And when these companies borrow funds for the solar projects, it would be at an average rate of 13% per annum. India’s target of 20GW by 2022 is same as that set by China but in terms of cost of borrowing, debt in China is as low as 3 to 4%. The rates at which these companies have bid to sell solar power is not enough to even recover their outgo on interest on the debt which they will need.

Camelot Enterprises, which has won a 5 MW solar photovoltaic in Maharashtra was the lowest bidder at Rs 10.95/ kilowatt-hour. And this is a handicraft company! And this is the company which was selected first, much ahead of the likes of IOC, Punj Lloyd, Lanco Infratech Ltd., KVK Energy.

Companies have justified this low bidding saying that more than making money, their bids were about getting a berth on the National Solar Mission. But is getting a berth alone enough? After winning the contract at auction, the developers have one month to sign power purchase agreements and a further 11 months to complete the project itself. To prevent irresponsible bidding, companies had to pay bid bonds on projects. They are liable to pay hefty fines for delays or failure to build. Well, we have fines for road building projects too but does that speed up the developers in any way?

Tata Power withdrew its name from this solar auction, citing it as unviable. It said that getting funding from banks at viable rates would be a problem and hence backed out. Azure Power, which has won the bid, is looking at funding from abroad. There is also confusion on how the electricity tariffs will go to developers.

What is also questionable is the quality of companies who have been awarded the projects. More than awarding projects on technical grounds, winners have been chosen merely on the lowest rates bid. There are the likes of (apart from Camelot Entp) Oswal Woollen Mills, Amrit Animation and Megha Engineering & Infrastructures (makes water-pumping equipment!). In the same breath, experienced developers like Abengoa SA, which has built plants in Spain and the U.S., and Acme Group, which is building a 10- megawatt solar thermal plant in India were chucked off. GAIL, Birla Corporation and Aban Goa have been outbid by Rajasthan Sun Techniques, Aurum Renewables, Megha Engineering, Corporate Ispat Alloy and Godavari Renewables. Almost 15 of the 30 lowest bidders are complete unknowns. Isn’t this how winners were chosen in the telecom bidding too?

The stink raised by the telecom scam is as such making breathing difficult and now, here too there wafts in the smell of another scam.

Two things can never be hidden – the sun and the truth. Hope the sun reveals the truth in this new scam.


Monday, December 20, 2010

Assam Co to demerge biz, focus on four verticals.

Q: A couple of days back it was reported that Canoro has stopped production at the Assam Oil field, in which you hold about 40% stake, is that true and what’s the kind of impact?

A: Yes, it is partly true. There were two well which were producing. One of the wells, which is well number 11, which was producing nearer to about 800-900 POE a day, I believe has been stopped because they are looking at the pressure and redoing the well, this is subject to what Directorate General of Hydrocarbons (DGH), what permissions would be given by the DGH. We still have a small production happening.

The production has only stopped as recent as December 3, 2010. So, there is not virtually going to be a major impact because most of the quarters have gone. We will have to see how we go about in the coming year.

Q: But how do you expect resolution of this?

A: We are looking at this favorably because there is some sort of legal dispute going on between us and Canoro and government has intervened in that. As you are aware that government has cancelled Canoro’s PI interest, which is participating interest, to the extent of 60% where Canoro has gone to the Court and has got some sort of stay. We expect a judgment coming out very soon. So, in all these things, this is a positive news and whatever this is being done would not really impact us this year on our balance sheet and hopefully next year we should do very well.

Q: Can you then just get to the acquisition of Duncan Macneill Power & Utilities, what exactly is this strategic fit and how much exactly did you spend on this acquisition?

A: This is not an acquisition as an acquisition, it was one of my earlier interviews with you all we had said the Assam company has now become a mixed bag. So, we are trying to make different verticals for different businesses and the board has approved that we should use different companies for different projects and this was one of the projects which we had.

We are putting up a 1200 megawatt of combined cycles, which is a gas based power plant, which we have acquired the land in Gujarat in a place called Vilayat and we have got necessary inprinciple permission of the gas from GSPC. We have also got the water permission. We have given to the environment for getting the environment clearances. So, that is how we are going forward with the project. Instead of doing it in Assam company where we have tea, oil and other utilities, so we thought of doing it in a separate company because at sometime we would be there in the market.

Q: So when do you expect this entire power project to crystallise?

A: It is on its way of crystallising. We are waiting for the environment clearance and we are waiting for the final clearance from the gas. Once the two is in position, nothing would stop us while starting the project. I think by month of February-March, we should have all those permission available with us subject to whatever government clearances are required.

Q: You made a point about making focused units, any plans of demerging all these various verticals and having them listed?

A: Yes, we are absolutely on this. We see that by having one individual unit the shareholder gets confused because there may be separate shareholders who may be interested in individual verticals, but may not be interested in the mixed bag.

Q: When will this happen, this restructuring?

A: The restructuring it’s already on its way as we have done through this, others are also on its way. We would be taking it to the board meeting. Those are valuation going on. It would happen between now and the next quarter that the company would have more definite plan of looking into more on focused activities. And that would also give us enhanced profitability on each individual sector.

Q: Can you just tell us about which are the demerged entities and which ones would you be looking to list?

A: The verticals at this moment is tea which we would now make it separate at some time. Oil and gas where we are going to do that. The third is SEZ, which is another subsidiary company of Assam Company, which is being delisted and the fourth is the power. So, we are putting it into four different verticals.


Sunday, December 19, 2010

Assam Company - Production Halted, Buys Duncan Macneill Power & Utilities Limited.

Canadian company Canoro Resources, involved in a legal dispute with the Union petroleum ministry for cancellation of its production sharing contract (PSC), has stopped production from its Assam oilfield, claiming an excess of water to oil ratio.

The Amguri field in Assam produces about 1,000 barrels of oil equivalent per day (boe). According to Sproule, an internationally recognised body engaged in making resource/reserve assessments, the reserve of oil condensate and gas at Amguri stood at 12.287 million Boe.

The company recently informed the ministry about stoppage of production, said a person familiar with the development. When asked, an official at Canoro’s office here refused to comment.

18 Dec 2010

Acquisition of shares of Duncan Macneill Power & Utilities Limited

Assam Company (India) Ltd has informed BSE that the Company has on December 17, 2010 acquired all the shares of Duncan Macneill Power & Utilities Limited, an unlisted Company, having its Registered Office at 52, Chowringhee Road, Kolkata- 700071, Consequently, Duncan Macneill Power & Utilities Limited had become a Wholly Owned Subsidiary of the Company.


Wednesday, November 17, 2010

Assam Company may get 100% stake.

Guwahati, Nov. 16: The Assam government has asked the Centre to re-allocate Canoro Resources Ltd’s “cancelled” stake in Amguri oil block to Assam Hydrocarbon & Energy Company Ltd to increase its hold over the state’s hydrocarbon industry.

A source in the industries and commerce department said the government had requested the Union ministry of petroleum and natural gas to give the AHECL the Amguri block when it comes up for sale. Assam had set up the AHECL in 2006 to explore and harvest the huge reserves of oil and natural gas in the state.

“If we manage to acquire Canoro’s 60 per cent stake in the Amguri field, the company’s portfolio will gain significant weight,” the source said.

The CRL owns 60 per cent stake and is the block operator with Assam Company India Ltd holding the balance 40 per cent.

In August, the Union ministry of petroleum and natural gas had issued termination order to Canadian explorer Canoro Resources Ltd for Amguri field, saying it had violated Article 29.2 of production sharing contract (PSC) by not seeking the government’s consent before making a “material change” in the shareholding of the company.

The ministry stated in the letter, “The contravention of the production sharing contract provision has been viewed very seriously and you are called upon to explain as to why the contract, in respect of the contract area identified as Amguri field, should not be terminated.”

Sources said the Canadian company had gone to Delhi High Court which had issued a stay on the termination order, implying that Canoro will continue to hold its 60 per cent stake until a decision is taken on the matter.

Sources in the Assam Company India Ltd said the ministry will look into the status of the Assam Hydrocarbon and Energy Company Ltd before taking the final decision as the AHECL is a new company .


Monday, November 15, 2010

Assam Company Results.

Kolkata-based diversified tea producer, Assam Company (India) Limited has registered 16.9% growth in the company’s net profits for the third quarter ending September 2010.

A leading domestic conglomerate engaged in diverse sectors like Tea plantation, Oil and Gas exploration and production (E&P) and Infrastructure, announced its results for the quarter and nine month ended 30th September, 2010 (Q3CY10) today.

The company’s total operational income for Q3CY10 stood at Rs.70.95 crore compared to Rs.73.52 crore in Q3CY09. Meanwhile, EBDITA grew 38.9% to Rs. 38.11 crore from Rs. 27.43 crore in Q3CY09.

A statement issued by the company this morning said, “The EBIDTA margins jumped to 53.7% in Q3CY10 from 37.3% in Q3CY09, propelled by improved tea realization, growth in Oil and Gas business and efficient forex management. Employee cost increased by 35.7% on account of industry-wide wage revision at tea estates and fresh recruitment of manpower.”

Company’s net profit for Q3CY10 was up 16.9% to Rs.33.33 crore from Rs. 28.51 crore in Q3CY09.

The company made no tax provision for the quarter on account of seasonal nature of its business and the final tax liability will only be determined at the end of CY10, depending on the results.

On equity capital of Rs. 30.98 crore, the earning per share (fully diluted) for the quarter stood at Rs. 1.08 (up 17.4%).

Commenting on the results, Aditya K Jajodia, Managing Director, Assam Company (India) Limited, said “Our results reflect the impact of our continuous thrust in improvement of product quality and product mix. This has also resulted in higher realization and margins. I am happy that our diligent efforts in creating a growth-ready organization are finally translating into numbers.”

During the quarter Canoro Resources Limited, a Canadian E&P Company (the operator under consortium with Assam Company India Limited) has made significant progress in commissioning the Gas reinjection project.

“While the tea division would continue to support our performance with sustained revenues, the Oil and Gas business will propel us into the next orbit by expanding margins, thereby resulting in enhancing stakeholder value,” said Jajodia.

In the coming months, the company would witness substantial increase in production from Amguri field, the only producing field. The company’s revenue from sale of natural Gas is expected to increase substantially pursuant to increase in Gas price by GOI w.e.f. June, 2010, the company statement said.

Oil and Gas accounted for 11.5% of the total revenues of the company (6.2% in Q3CY09), and registered an increase of 80.9% in absolute terms to Rs. 8.14 crore.

Divisional EBIDTA for the quarter stood at Rs. 4.44 crore (up 196.3%), driven by improved production of Oil and Gas where Company’s participating interest is 40% (Oil production up 46.4% to 11577 bbl and Gas production up 44.4% to 5765 mcm) coupled with better realizations (Average sale price of Oil up 10.2% to USD 79.43 bbl and average sale price of Gas up 73.9% to Rs. 5966/mcm) during Q3CY10 as compared to Q3CY09.

Revenues from Tea business division accounted for 88.5% of the total revenues during the quarter under review. In absolute terms, the tea division sales stood at Rs. 62.71 crore, as compared to Rs. 68.53 crore, on account of lower production.

The average realization for the tea improved by 15.1% to Rs. 167.93/kg in Q3CY10 as compared to Rs. 145.87/kg in Q3CY09. However, total sale of tea in terms of quantity decreased by 20.4%, resulting in lower divisional revenues for the quarter. Divisional exports for tea accounted for 13.21% of the divisional revenues during the quarter. Divisional EBIDTA margin was stable at 34.8% in Q3CY10, as compared to 34.9% in Q3CY09.

For the nine months ended September 30, 2010, the company’s total operational income stood at Rs. 134.48 crore as compared to Rs 135.04 crore in the corresponding period previous year and its net profit stood at Rs 24.58 crore, up by 34.68% as compared to the corresponding period previous year. The Company’s EBIDTA registered an increase of 5.3% to Rs. 34.11 crore during nine months ended September 30, 2010
Q: You are in the process of demerging the Borboorah Tea Estate and transferring to Camellia Cha Bar. Can you take us through why you are doing it?

A: The board took a prudent view that we should look at three different sorts of businesses; one is oil as different sector which is today part of our main company, SEZ as a second sector and tea as the third. We are refocusing on tea where we are trying to look at different gardens for a value added projects.

They are all part subsidy of the company but we want to refocus them for a different reason. Hence the company took a decision to do the demerger so that the exact shares valuation comes in and there can be more focus towards these businesses.

Q: What is the eventual plan? Will you have two separate listed companies; one focusing on energy and one on tea?

A: That’s right. There will be about four different companies ultimately. One would be purely oil and gas based, one would be energy, one would be SEZ and one would be tea.

Q: By when will this process be done and all four be listed?

A: We are studying that and are looking into tax matters, government rules, regulations so you would be seeing a series of announcements coming as and when we complete this study.

Q: Can you give us an update on the 1000 megawatt power plant that you have been planning?

A: In the current statement, of a 1,000 megawatt power plant, 1,050 megawatt combined cycle which is coming in Gujarat, we have acquired the land, water permissions, permission from the state government, we also have the principle letter for the gas and we hope to crystallise this permission in next few months.

There are two major permissions which we are waiting for; one is the environment and the other is getting the final permission for the gas. Right now our position is strong and we are ahead of time and hope in other four-six months everything should come through.

Q: For the current quarter sales were flat. What is your outlook for the tea business now that it will be traded or quite soon will be traded in a standalone form? How is the outlook for that looking in terms of prices?

A: The prices have been up by nearly Rs 20 or 15%. The reason why you are not seeing that is because in the last quarter our exports what we booked has not come into the balance sheet because the shipment somehow didn’t take place because of some reason.

All those will come into the current quarter so this current quarter will be exciting for us. We see a favourable jump over the last year and there would be no comparison between the two.


Wednesday, November 10, 2010

Assam Company can head upto Rs 36, says Mitesh Thacker.

Assam Company can head upto Rs 36, says Mitesh Thacker, Technical Analyst,

Thacker told CNBC-TV18, "Assam Company - strong breakout over here and while we are still midway through the week and the stock has recorded its highest ever weekly volumes at about 3 crore a share already for the last 2.5-3 days. I think this stock should do well over the next few weeks, it could head towards Rs 36."

The company's trailing 12-month (TTM) EPS was at Rs 0.70 per share. (Jun, 2010). The stock's price-to-earnings (P/E) ratio was 40.93. The latest book value of the company is Rs 9.97 per share. At current value, the price-to-book value of the company was 2.87. The dividend yield of the company was 0.7%.


Oil Min to defend Canoro PSC termination at Delhi HC this week

The petroleum ministry’s petition to the high court here for a go-ahead on its earlier termination of a production sharing contract involving Canoro Resources of Canada for an Assam oil block will be heard on Friday.

In August-end, the ministry had terminated a contract between Canoro and Assam Company India Ltd (ACIL) for the oil block. This was the first termination of a PSC in the Indian oil and gas industry.
The ministry cited the PSC in saying the decision was due to a change in the shareholding pattern of Canoro. Canoro owned 60 per cent and was the block operator, with ACIL holding the balance 40 per cent.
Canoro challenged the termination at the Delhi high court; it got an interim order of restraint on the petroleum ministry from appointing a new contractor. "We have filed a petition seeking the vacation of this order," said a government official.

The development is analogous to the Cairn-Vedanta case involving the ministry. Cairn Energy initiated a process, around the same time, to sell between 40 and 51 per cent stake in subsidiary Cairn India — operator of the nation’s largest onland oilfield — to London-listed Vedanta for $6.65-8.48 billion. The government is yet to give approval and has said its permission for the deal should have been taken first, something Cairn contests.

The Amguri field in the Assam block produces about 1,000 barrels of oil equivalent per day (boe) and is estimated to have proven and probable reserve of oil condensate and gas of 12.287 million boe. In the case of Cairn India, the stakes are much higher, with average crude oil production from its Barmer block being 120,000 barrels a day. Cairn is also operator of the Ravva oil and gas field and the Cambay Basin (CB/OS-2), which produces 37,043 and 13,527 barrels of oil equivalent per day.

The ministry had on June 1 issued a showcause notice to Canoro for raising C$95 million in April through a mix of debt and equity from Barbados-based Mass Financial Corp, without the "required consent" of the government. Mass initially got 18 per cent equity in Canoro but after the closure of the rights issue, it now holds 52.9 per cent of the oil block and has three out of five directors on the board.


Tuesday, November 9, 2010

Assam Company - Fort Share Broking.

Buy Assam Company, says Aashish Tater, Head of Research, Fort Share Broking.

Tater told CNBC-TV18, "Assam Company is one space which has been doing rounds about from 2007 onwards because of its rich oil and gas available in the Assam region and Nagaland region but what is interesting for us is the inclusion of the top management with Pradip Tusnial. We feel that this particular personal has turnaround the tea estate story for Khaitans and we feel that there could be a good restructuring prospect into this particular stock itself. We feel that this company is having a asset of close to Rs 1,800 crore on NAV basis that too when I discount this on return of equity of close to 26% which is very high because this company is having a small sale that owns 18 tea plantation across India and also own four oil and gas base."

He further added, "What is interesting is the GSPC tie-up for a 750-1000 mw SEZ project that the company has recently got nod for. If I see the peer valuation of SEZ project, we feel this stock is terribly undervalued but what is interesting is how the company is going to fund this particular project because the company is already sitting on a debt of Rs 513 crore and that’s why we feel that this stock can be a good buy because we feel at 22-21 the downside is 8-10% but there could be a potential upside up to 100% from two years perspective."

"If I see the entire oil and gas reserves they have a proven record in the Arakan and Amguri based in Assam which is close to 60 million barrels of oil and close to 290 cubic feet billion cubic feet (Bcf) of gas along with that the company is into the exploratory area right now for the AAON-7, we feel there could be a major restructuring exercise into the stock and the net asset value at a very high return on equity, discounts at Rs 40 from two years perspective. We have pegged the Diwali target given this was our Diwali pick at a very conservative target of Rs 30 by next Diwali which is still an upside of 40-45% from current levels and given the recent inclusion of one of a person who has got restructuring done and as a prove track record for the management, we feel this could be a clear multibagger if someone holds it for two-three years perspective for a decent 25% upside year on year returns on to the stock."

Indosolar: At the CMP of Rs 26, Indosolar trades at a P/E of 6.6x on FY12 EPS estimates of Rs 3.9. On a EV/EBIDTA basis, the stock is available at a multiple of 10.6 & 4.2 on FY11 & FY12 estimates. We recommend a “BUY” rating on the stock with a long term view.

Godrej Properties (GPL): Given the kind of unique asset light business model & visibility of strong cash flow with JDA, GPL commands rich valuations to its peers & trades at a premium to its NAV of Rs 570. At the CMP of Rs 718, we recommend a “BUY” on the stock with medium to long term view.


Sunday, November 7, 2010

XL Telecom - Q3 Results.

Q: Could you just take us through the numbers?

A: The current quarter ending September 30, which is the third quarter for us this fiscal. We ended up with topline of about Rs 61 crore and the net profit after tax is about Rs 12 crore.

Q: Last quarter you had losses because of inventory write downs is that pretty much out of the way?

A: No. This will be the last quarter in which we had to go through. Technically, we have the profit before tax, the loss write down because these were the inventories we carried from 2008. At that time the prices were close to 3 euros and we had to sell about 1.4.

From the October quarter we will be with the new inventories and whatever fresh we have bought in the current market prices in this quarter because of the deferred tax we had provided earlier we had to provide. So we covered those losses.

Q: So at the PBT level you are reporting a loss even this quarter?

A: Yes. Profit Before Tax.

Q: What is the PBT level?

A: It is about Rs 72 crore.

Q: What is your deferred tax write in?

A: It is about Rs 84 crore. So the net profit after taxes has come positive.

Q: What do you expect you will do in the last quarter?

A: We should be doing close to about Rs 100 crore plus. From the current quarter we are targeting Rs 60 crore, about Rs 100 crore this quarter. But effective January we have a very good visibility because the Indian government has cleared the Jawaharlal Nehru Solar Mission where we have order book visibility of close to Rs 200 crore plus. This quarter we should have good growth quarter on quarter on the topline and we continue to do that way.

Q: But you will be in the black even in your bottom-line in the fourth quarter?

A: Fourth quarter operating level yes.

Q: Do you have any fund raising plan at all for the ongoing quarter?

A: We are looking in terms of as we had come and told about few months back about the GDR. We are looking in terms of raising that. It has to be the market conditions and other things should be continued to be in good condition like this then we should look at pricing in this quarter.

Q: This orders that you are speaking about for next quarter are they tied in – the MoUs are signed – is it financially closed, the solar mission orders.

A: They have to get the financial closure that is the reason we have not announced the orders as of yet. But for this quarter we have confirmed orders for exports not for domestic.

Sunday, October 17, 2010

Orbit Corporation.

Q: How have sales been ahead of the festive season? Are you seeing an uptick in sales both in Lower Parel and in Napean Sea and your other properties and what about rates as well?

A: After we came out from the downturn we saw fabulous second half of 2009. The first quarter of 2009 was nice but post that four-six months were not so exciting in terms of of-takes but since Ganpati, the festive season brought in the good luck and we are seeing good movement of real estate. We are seeing interesting products being offered by lots of developers. That’s also helped in spurring the demand—more or less these projects are in Lower Parel. The projects in suburban Mumbai have got huge demand provided of course the prices remain stable they will continue to go off the shelf.

Napean Sea Road and Malabar Hill wherever we are doing our developments prices we have not moved them up so therefore the demand is good and its moving up.

Q: If you can give some numbers in quarterly or in half yearly terms in terms of how you could move in square feet compared to the previous half year?

A: At Orbit it’s been a bit of a different story because of the fact that we saw that Lower Parel will be huge supply area so we kind of kept our prices on the lower side so we have been selling our price range of about Rs 19,000-21,000 in Lower Parel. As far as Malabar Hill is concerned, we been selling the price range of anywhere between Rs 60,000-65,000 and in some cases even Rs 70,000 if it’s a higher floor and a better flat.

Q: What about south Mumbai market project that seems to be more lucrative although the volumes maybe lower there but value there seems to be higher, what is your outlook there?

A: That’s the reason why we are in that market because the outlook is good, we get good presales, we get good down payments and the off take is phenomenal. The point over here is that a customer needs good location and real estate is all about location. It takes a lot of effort to actually produce properties in premium locations like the real south Mumbai which is south of Haji Ali and that’s what we have developed our core skills at over the last 15 years.

Q: But many experts have been contending that prices had reached heady levels in Mumbai and we were going to see a bit of a correction in the markets. Where do you think we are in that rate correction cycle right now?

A: As far as rate correction cycle is concerned, only in locations where we will see oversupply, we may see some I wont say a correction but softening, some freebies, some interesting products in terms of financial offerings so that’s where we will see, we will see rates more or less stable of around Rs 20,000-25,000 in Lower Parel Central Mumbai.

We will see rates between Rs 50,000-70,000 in premium South Mumbai locations and in suburbs we will see rates of around Rs 7,000 to 15,000 depending on the suburb and the developer and the development.

Q: So for the full year what do you think you will be able to make in terms of revenues and more importantly FY12 since you will have perhaps bulk of your sales happening in that year? What kind of revenue growth can you look at, at this point in time?

A: At Orbit we have been maintaining that over the next three-five years we should be looking at 40% year on year growth or 40% CAGR looks good because of the fact that in 2007-2008 we acquired quite a few projects and those projects are now coming to fruition and start-up so that’s very much there. The great Mandwa project which is across harbour at Alibaug that we have had a soft launch, we sold about 24-25 units, phenomenal response where we are selling at more than Rs 10,000-11,000 a square feet in Mandwa so things are moving well so 40% growth year and year looks good over the next three-four years.

Q: You have retired most of your debt. Is there anything more in terms of debt trimming that you will do and more important will you try to trim debt by raising more equity since you have bunch of projects coming?

A: We have always been saying that we would only get into raising more equity if its makes sense in terms of the price in terms of that if we had opportunity so today our cash flows are robust enough to take care of the existing so there is something very exciting, yes we may go and raise for the debt but doesn’t seem likely over the next at least quarter to two quarters as far as debt is concerned we have cut down our debt and our cost of borrowing by about 1-1.5% so we are very comfortable with that.

Q: As you predicted, we did see some kind of discount coming into Lower Parel prices. In the next six months to 12 months, how may prices fall—by 10%? Do you have a number—fall or rise?

A: It will remain where it is right now because developers do not have much in their kitty in terms of margins. So as far as the prices are concerned, we will see sideways movement. We will see good off take, so that’s the good part.


Sunday, October 3, 2010

Hindustan Zinc

CMP Rs1,084, Target Rs1,277, Upside 17.8%

Hindustan Zinc Ltd (HZL) is one of the best bets among the metal companies on account of the integrated nature of its business and the volume growth over the next two years. While zinc prices have rebounded sharply (up 27% since June ’10) on the back of improved global economic sentiments and ample liquidity situation, HZL’s stock price has gained only 10% over the same period. It has underperformed not just the Sensex but also global zinc stocks (+15%). We believe that the underperformance is unjustified and the stock should trade at par with its international peers considering the size and integrated operations of the company. Also, based on our base case, we expect acquisition of Anglo American’s zinc assets to add Rs86/share to HZL’s fair value. Cash & equivalents at the end of Q1 FY11 stood at Rs123bn, representing 27% of the company’s current market cap. Even with our metal price assumptions, which are lower than the prevailing prices, we expect HZL to witness earnings CAGR of 15.1% over FY10-12E. We recommend a BUY rating on HZL for a target price of Rs1,277.

Zinc prices to remain range bound

We estimate zinc prices to remain range-bound in H2 2010. Major commodities will remain in a surplus state with the increase in supply overtaking demand. Attractive commodity prices have led to many idle capacities being restarted during the first half of 2010. However, metal demand has not returned to the 2008 levels. We estimate average zinc prices of US$2,000/ton in FY11 and US$2,100 in FY12.

Acquisition to increase capacity by 37%

HZL recently acquired Anglo American’s zinc asset portfolio for US$1.4bn. These assets produced 343,000 tons of zinc metal and 55,000 tons of lead metal. In CY09, blended cash costs for Anglo stood at US$1,148/ton. On a base case scenario, we assume 1) no cost reduction on account of HZL’s expertise 2) production volumes to remain constant and 3) zinc realisation of US$2,000/ton in FY11 and US$2,100/ton in FY12. We expect the acquisition to add 14.4% in FY11 and 15.1% in FY12 to the company’s earnings. The acquisition will be earnings accretive from the first year itself and will also provide higher returns (RoE of 17%) compared to the company’s treasury income (RoE of 5%) on its underlying cash.

Valuation summary
Y/e 31 Mar (Rs m) FY09 FY10 FY11E FY12E

Revenues 56,803 80,170 97,371 110,011

yoy growth (%) (27.9) 41.1 21.5 13.0

Operating profit 27,342 46,702 55,881 63,843

OPM (%) 48.1 58.3 57.4 58.0

Reported PAT 27,276 40,415 47,556 53,721

yoy growth (%) (38.0) 48.2 17.7 13.0

EPS (Rs) 64.6 95.7 112.6 127.1

P/E (x) 16.6 11.2 9.5 8.4

Price/Book (x) 3.1 2.5 2.0 1.7

EV/EBITDA (x) 13.0 7.2 5.2 3.7

RoE (%) 20.8 24.9 23.4 21.5

RoCE (%) 24.8 29.9 28.1 26.1


Saturday, October 2, 2010

Mahindra Satyam - Outlook.


While the company has lost a large number of customers and employees, the positive aspect is that the worst is behind. “With the clouds of uncertainty disappearing over the financials, more RFI (request for information) would come. The company would need to gain smaller clients before class-one clients come on board,” says Arup Roy, senior research analyst, Gartner.
In short, analysts suggest the company should start witnessing a rise in revenues in the coming years. The company, which had battled a reduction in employee strength consequent to business realignment and attrition, is now looking to add over 3,000 employees in 2010-11, an indication of the management’s confidence for the future. While the cash and investments on hand worth Rs 2,807 crore (as against a debt of just Rs 42 crore) provide confidence, its balance sheet looks strong to weather any future pressures. However, liabilities in the form of class action lawsuits ($68 million) and other claims could affect profitability. Additionally, with the US economic recovery still weak, it could act as an overhang on the stock.

Profits will be doubled in next year.


Monday, September 27, 2010

XL Telecom - Interview.

Q: Did Goldman try to renegotiate further because you had brought down the conversion price from Rs 260 to Rs 150, but even at Rs 150 it was five times the market price?

A: There was no negotiation as such because the RBI guidelines only allowed the last Rs 150, plus of course the face value, Rs 160 is actually the conversion price.

Q: So what is Goldman’s stake now in your company post the conversion?

A: On behalf of couple of more people, it is close to 14.5%.

Q: What do you mean when you say on behalf of couple of other people?

A: It is P-Notes as we understand because the initial investor was Sansar Capital. As I do not know currently who are all the people who have converted, few of them had kept the original investors in the P-Notes. Maybe it is on behalf of somebody else, it may not be completely on behalf of Goldman Sachs.

Q: It’s 14.9%, the collective shareholding?

A: Yes.

Q: So who holds the remaining shares of the company?

A: There are lot of other institutions and promoters and general public as of now.

Q: What is your business looking like, the renewable energy side now?

A: Europe is picking up very well in the last few months. Post Lehman there was serious fall off business in 2008 September onwards. Last one quarter we have got close to Rs 150 crore worth orders from Europe. We are seeing a good visibility in Canada, Australia and other parts of the world.

Even in the case of India as we have observed a lot of tenders have been floated and lot of people have been allocated. We are seeing close to about 20% market share even in India where we have reached MoUs for establishing the solar parks close to about 20 MW. So, we should get close to Rs 200-300 crore from the Indian business as well, going forward.

Q: What is your current order book though now in solar?

A: Current firm order book is Rs 154 crore. We have another close to Rs 200 crore MoUs, we call it as MoU because the client has not got still the financial closure for their project. Till they get the financial closure, we enter into MoU and once they reach the financial closure we convert into the firm order.

Q: What is the execution timeline for Rs 200+150 crore?

A: This should be close to about six-eight months kind of timeline.

Q: So all of it will be booked in the next one year, this order book?

A: Yes. We are targeting about Rs 700 crore in the next 12 months that is October to September timeframe.

Q: With what kind of profitability because your last disclosed numbers still had a net loss of Rs 50 crore?

A: It was basically due to fall in the selling prices as we had to revalue the inventories accordingly. Now, the uptick is there in terms of price realization. So, we do not see that kind of a problem going forward. But the margins are about 15-17% gross margins and net margins are about 8% level.

Q: Are you sorted out on your balance sheet because you had run into a lot of problems, debt had to be restructured. Currently things are okay or do you still have a lot of pending obligation to the banks who restructured?

A: The CDR package has been completely implemented, banks have been very cooperative and they have in fact converted their interest outstanding into preferential equity. So, close to Rs 100 crore they will be taking cumulative redeemable preferential shares. So, currently things are in order and we should not have any problem from them and they have been very cooperative at this stage.

Q: You had taken some approvals to raise equity as well to the tune of USD 100 million or up to USD 100 million, any equity raising that you have in mind?

A: We are planning about 25 million to raise before December. This is basically for implementing the solar power projects in Canada and Australia.

Q: So that will be a QIP?

A: Either QIP or FCCB kind of an instrument.


Friday, September 24, 2010

XL Telecom Equity Expansion- Part 2

XL, which was largely a telecom equipment maker till three years ago, has shifted its focus to renewable energy.

Goldman Sachs has picked 8% stake in XL Telecom & Energy by converting foreign currency convertible bonds(FCCBs) into shares at a significant premium to the existing market price. Goldman Sachs picked the shares at Rs 150 per share, that fueled a rally on the company shares as the scrip shot up almost 20% hitting the upper circuit of the day at Rs 31.9 at BSE.

It had raised $40 million in October 2007 and, last year, reset the price of FCCB convertible into equity from Rs 260 to 160 and had issued some shares due to such conversion from FCCBs.

The company, that was largely a CDMA technology telecom equipment maker till three years ago, has shifted its business focus towards renewable energy, that contributed 94% of its Rs 430 crore odd revenues for the 18-month period ended December’09.

The company is focusing on grid connected solar solutions that is believed to be growing faster compared with standalone conventional solar systems. The firm’s board had two months ago approved change in the name of the company to XL Energy Ltd to reflect the new business model. It entered into big losses last year and approached the corporate debt restructuring cell given defaults on debt and interest obligations.

This in turn was due to cancellation of large order from Spain in 2008 coupled with mark-to-market losses due to decline in raw material prices thereafter. This forced the firm to go for debt restructuring by banks led by SBI. The restructuring scheme that was approved in December last year included repayment of loans in 32 installments beginning quarter ending September’11, reducing rate of interest for three year period, selling off wholly owned subsidiary Khandola Distilleries Ltd and the ethanol business in 2010.

The total cost of restructuring for lenders stood at 234.6 crore and the promoters were to bring in Rs 40 crore in two installments in FY 2010 and FY 2011.

XL Telecom & Energy also disclosed on Friday that it has raised Rs 23 crore through issue of cumulative redeemable preference shares to banks. It had earlier in June said it has raised Rs 49.2 crore by issuing similar preference shares to banks.

Goldman Sachs’ holding will whittle down once all the outstanding securities get converted into equity.


XL Telecom Equity Expansion- Part 1

XL Telecom & Energy on Friday said it has allotted over 18 lakh shares to Goldman Sachs Investments (Mauritius) I on the conversion of bonds.

The company has issued 18,65,156 equity shares at Rs 150 per share, aggregating to Rs 27.97 crore to Goldman Sachs Investments (Mauritius) I, XL Telecom said in a filing to the Bombay Stock Exchange.

Besides, the company has also raised Rs 23.06 crore by issuing 2.30 crore cumulative redeemable preference shares of Rs 10 each to banks. – PTI


Wednesday, September 22, 2010

The Rules Of Realty.

One of the more frequent questions I get asked is, “Is real estate going up?” The truth is, I don’t know. But that’s not how I typically answer. Instead, I ask a question in reply: “Why are you asking?” The other question I could ask is, “Over what time-frame?” Those two questions, in short, set my perspective on real estate—the nature of your interest in real estate and your time-horizon. Let me explain.

Real estate in urban India is an excellent investment and will continue to be so. India is one of the least-urbanised countries in the world, but that is changing fast. Urban planners project that Greater Delhi, for example, will become the largest city in the world by 2020. People make more money when they interact with each other, and the infrastructure of cities makes that possible. The desire to move to the cities is virtually universal among our village youth. If you plan to spend the bulk of your active life living and working in urban India, put money down for a home as soon as you can. EMIs and other terms of the housing loan industry will, I hope, ensure that you do not overextend yourself. If you are married, and both of you are earning, make sure that the monthly payments will be covered even if you plan to have a child soon, and one of you then take a longish break from work.

The first house you buy may not be the home you would like to have when your children need more space for themselves; but don’t wait till you can afford that dream home. One or two upgrades in the course of an adult life is par for the course. So, real estate offers great returns. After I have acquired my own home, why not invest in property as a retirement fund? In the best-case scenario, it works. Irrespective of the swings in property markets, thanks to the macro scenario in India, the property will eventually fetch you a good return.

In a growth market like India, unless you pick a real dud, investments in both real estate and listed companies usually pan out, and offer comparable returns. But, price cycles in Indian real estate are pretty long—12 years or so from peak to peak, or fi ve to six from top to bottom. If you need to cash out of real estate when the markets are dropping, fi rstly, you are looking at a substantial loss; secondly, when prices are dropping: you could wait for months before you fi nd a buyer, even when you are willing to take the market price.

The second problem with real estate investments is that they are expensive and messy—expensive because registration fees are high; messy because titles are not clear, real estate developers never deliver on time, and the brokers, the less you say about them, the better. I have been intimately involved with at least 10 real estate deals in the last as many years, and all except one had my blood pressure way out of control. In contrast, want to sell equity worth one thousand, or one crore? Make a phone call or press a key on your keyboard. Within 48 hours, the cash will be in your bank account.

Which brings me to the last point—if you need money, investments in real estate are indivisible. Meaning that, if you have a crore in shares, you can withdraw one lakh or fi fty with equal ease. But, if that same amount is invested in a fl at, and you need, say Rs 20 lakh, you need to sell the property, incur the selling costs on the whole amount, and then fi nd a lucrative way to reinvest the amount not immediately required. In other words, ignore the ups and downs of real estate prices. Buy your fi rst home as soon as you can, and don’t bother to fi nd out ‘What it is worth’.To invest your spare cash, find a vehicle that is less stressful.


Reality check on holiday homes.

Plots or bungalows in far-flung areas take more time to give returns.

The recent advertisements of holiday homes are inviting — a picturesque house nestled in lush green surroundings with the caption reading: “Invest and soak in luxuries of life” or “An investment for generations”. And, above all, a three-digit price tag: Rs 199 or Rs 299 a square feet (sq ft).

Enticed by one such advertisement, Chirag Shah bought a plot in Khadavli, a Mumbai suburb, six years ago and constructed a bungalow. “I plan to use it as a holiday home and sell when development starts in the area,” says Shah.

There are many people who buy such properties as an investment. But they cannot be sold in haste. Since Shah purchased the plot in 2004, its value has risen 80 per cent. In comparison, the price of his Mulund residence has increased four times, or 400 per cent.

No wonder experts say purchasing big properties in far-flung areas for returns may not be a smart idea. “Their value does not rise as much as a real estate property inside the city. In addition, the maintenance cost is high,” says Pranay Vakil, chairman, Knight Frank (India). Here are a few things to look at:


On rent: If your house is in a city or a town, you can let it out full time. And, if it is in the suburbs, you can give it on rent for a short duration to picnickers. But you will have to spend on a caretaker or a guard and also take care of the food.

for weddings or parties: Villas and bungalows in the suburbs are also used as wedding and party venues. For parties, you may have to incur a cost for arranging food.

Location shoots: Television and film producers are always scouting for new locations to shoot films or advertisements. Again, a caretaker or a guard will be required.


At Rs 299 a sq ft, you can buy a 4,000-sq-ft plot for only Rs 12 lakh. But actual expenses begin only when you start construction. The cost of basic construction is Rs 600-700 a sq ft. This means if you are constructing a two-storey house, using one-third of your plot, you will spend Rs 16 lakh for only the basic structure.

Many owners keep spending on such plots from time to time. Some may opt for landscaping, build a small swimming pool, or even add a gazebo.

“The maintenance cost of self-constructed property is higher as it is used only a few times in a year. The access road and the area around the plot wither more if the house is surrounded by hills or the area has extreme climate,” says Raja Kaushal, executive director, BNP Paribas Real Estate Advisory.

Ready villas or bungalows

Real estate experts said most such schemes were a flop because of security reasons and poor infrastructure, including sanitation and power back-up.

If you are buying a ready-made second home, go for a reputed developer or an existing project that has a good track record. This will ensure security, including boundary walls and fencing, and stationing of guards. Infrastructure, too, will be on a par with what you get in the cities. “However, be prepared to shell out five-seven per cent of the property cost on maintenance,” says Vakil. So, even if the value rises 10 per cent annually, the rise after deducting maintenance charges comes to three-five per cent.

Vacation ownership

Under such a scheme, a person buys from a developer who rents houses to vacationers when they are not in use. For instance, RCL Homes is offering two schemes— rent back and without rent — at Karjat in suburbs of Mumbai, Lonavala, Khandala and Alibaug.

In the rent-back scheme, for a 425-sq-ft studio apartment (which costs Rs 9 lakh), the builder will pay Rs 3,500 every month and use the apartment as a resort home throughout the year. You will be allowed to stay in the house for a month any time of the year without paying any maintenance cost. For a one-bedroom-hall-kitchen of 675 sq ft (which is priced at Rs 14 lakh), you will get a rent of Rs 5,000.

While the concept looks interesting, it has failed to take off. “Occupancy of the property is not guaranteed. So, income is irregular, and in most cases, does not even cover the maintenance cost,” says Sunil Rohakale, executive director, ASK investment holding. He also manages the company’s real estate fund.

The appreciation of land prices in these second homes is lower than plots and ready-made properties, says Vakil.


Monday, September 20, 2010

Mid-Cap Pick (Economic Times).

Mid Term Pick: Hindustan Zinc.

1074, 1410

Hindustan Zinc, India's largest zinc and lead producer, has huge mine reserves of more than 25 years and is the lowest cost producer at nearly $750 per tonne. It has recently expanded its capacity to 1MTPA, making it world's largest zinc/lead producer. At CMP, it is trading at an attractive EV/PAT of 5x.

“Hindustan zinc (HZL) has reported decent set of numbers for Q1FY11. The company falls into the lowest cost curve, with mine reserves of 298.6 MT which is to last over 25 years. Due to its backward integrated operations the company is the least impacted with the recent fall in the commodity prices. We believe that the base metal prices are likely to stabilize at these levels keeping in mind the marginal cost of production. Strong balance sheet, being cash rich and debt free, provides significant cushion to the company in undertaking initiatives for organic/inorganic growth. HZL is currently available at an EV/EBITDA of 3.3x its FY12 estimates. At the current market price the stocks EV/PAT works out to be 4x, a payback period of 4 years vs a mining life of over 25 years. We thus recommend a buy on the stock with a target price of Rs 1410,” says Sushil Finance research report.

Courtesy: Economic Times.

Wednesday, September 15, 2010


Reliance Industries

Reco Price: Rs 958,
Target Price: Rs 1,260

RIL’s stock price has borne the brunt of negative news flows on account of slower ramp-up of KG Basin gas, subdued refining and petrochemical margins and concerns over the redeployment of the cash flows. However, the current price has discounted the worst case scenario. Brokerages expect RIL’s profitability to register 34 per cent CAGR over 2010-12 driven by improvement in refining margins coupled with ramp up of oil and gas production at the KG Basin. Higher share of E&P in the profit matrix will reduce exposure to cyclical segments. RIL's newer ventures (shale gas, Broadband and power) will keep it on high growth orbit going ahead. The stock is relatively under-valued trading at 1.7x 2011-12 P/BV. Maintain buy.

—Angel broking


Gas Power Plant in Bharuch

Assam Company (India) has received a communication from the Energy and Petrochemicals Department, Government of Gujarat conveying that the state government has no objection to the company setting up a gas based combined cycle 750 - 1000 MW power plant on the energy plant of 60 hectres of energy SEZ land located at Vilayat Industrial Estate, Bharuch, Gujarat.


Saturday, August 28, 2010

Canoro's PSC Terminated.

In what is being seen as a veiled threat to the Cairn-Vedanta deal, the Petroleum Ministry has, for the first time, terminated a production sharing contract (PSC) with an oil and gas producer for allegedly violating disclosure norms. Not just that, it has cited “national interests and government’s sovereign power on the national resources” as a reason.

The ministry today issued the PSC termination order to Canadian explorer Canoro Resources Ltd (CRL) for the discovered Amguri field in Assam saying it had violated PSC Article 29.2 by not seeking the government’s consent before making a “material change” in the shareholding of the company.

The order says that the “contract will stand terminated upon expiry of 90 days from the date of this ministry’s letter dated June 1, 2010, that is, August 29, 2010”.

CRL owned 60 per cent and is the block operator with Assam Company India Ltd holding the balance 40 per cent.


Saturday, August 21, 2010

Engineers India

The cash-rich public sector company, Engineers India, has been on fast track mode, whether in expanding profits or successfully completing a phase of divestment of shares in the market. Business Line caught up with Mr R.K.Grover, Director (Projects), Engineers India, to understand the company's prospects in India and abroad.

Excerpts from the interview:

Increased discovery of gas reserves, the national grid pipeline and private retailing being allowed all mean higher activity in the oil and gas sector. What do these convert into for Engineers India?

Once gas is discovered there is gas processing. A number of gas processing plants of ONGC and GAIL have all been put up by Engineers India. GSPC with gas-find in the east coast has also engaged EIL. So our experience is ensuring repeat orders.

After processing, gas has to be transported through pipelines. We have done most of the cross-country pipeline for GAIL; even currently, the Dabhol-Bangalore pipeline consultancy is being done by us. So expertise exists there as well.

After gas transportation comes city gas distribution. Only a couple of weeks ago, the Government announced seven or eight additional cities thrown open for city gas distribution. While we do not see much scope for consultancy services in city gas distribution, we will definitely look forward to joining hands with somebody or maybe going alone to bid for city gas distribution as an operator.

Next is our focus on gas-based fertiliser plants; where we are looking at a couple of options. Another use for gas is in gas-based power plants. Again these will be co-generation type of plants. All the captive power plants put up in hydro-carbon industry; whether it is refinery or petrochemical are also mostly co-generation. So we are trying to translate the know-how we have, to bigger power plants.

From revenues traditionally driven by consultancy, EIL has seen increasing contribution from lumpsum turnkey (LSTK) projects. Is there a conscious shift and would it not affect profit margins?

Our margin last year in consultancy was 40 per cent whereas it was 9-10 per cent in LSTK. When you talk of margins, you look at the percentage. One other way is to look at the actual value. Actual value is shooting up in LSTK. If I execute a Rs 1,000-crore project and make a 9-10 per cent margin then I have Rs 90-100 crore.

If the same project is given to me as a consultancy job then I will charge a fee may be in the range of 6-10 per cent. Even assuming a 10 per cent fee, I charge Rs 100 crore. Profit on that may be Rs 30-40 crore.

So in absolute terms, my profits are higher in LSTK. Whether I do a job on EPC management (EPCM) basis or LSTK basis, the technical man hours I spend is the same. If you look at the profit per man hour, it is higher under LSTK and lower under EPCM.

The most important factor in the business of companies such as EIL is that our manpower must remain engaged and they must book their man-hours on actual billable jobs. The moment this slows, overheads shoot up. So we cannot have manpower idle. We want to get back to fertilisers, balance of plant for nuclear power plants and so on, to keep our manpower engaged.

Has your overseas revenue declined as a result of slowdown in the Gulf?

The slowdown in overseas revenue did happen from 2008 but its impact was felt with a lag. But overseas hydrocarbon orders are picking up again. If you take Algeria, they are putting up some new refineries and we are talking to them. In Oman, we have made a good breakthrough in upgrading refineries. In Abu Dhabi, we have a small office exploring options. However, we do not restrict ourselves to one region or country. For instance, we were in Qatar for 3-4 years and then moved away. We have worked in Vietnam, Malaysia, Ghana and Kuwait. We move wherever opportunities arise.

Is there intense competition in the regions you mentioned?

The problem in the Middle-East is different altogether. Many of the companies in countries such as Saudi Arabia want our manpower, which we desist unless there is an assignment. But when it comes to awarding consultancy jobs, they go to European companies.

So does their (European companies) edge lie in pricing or technology?

It is not so much the technology nowadays. Many of the companies such as Shell for instance have some shareholding. So the preference is for these companies.

There have been a lot of Chinese and Korean companies coming to India in the power segment. How is the competition from these nations in your space?

For many of the grassroot projects, there is not much competition in the domestic arena as there are not too many players to take up such huge jobs and when someone comes from abroad they are not cost-effective. But when it comes to small projects like putting up a single processing unit, there is competition and we have to do some strategic pricing there. But again even in these small projects, when there is a revamp of existing units, most of the clients tend to come to us.

Refinery capacities are expected to be high and India is expected to be a net exporter. Does that mean lower opportunities for EIL?

Yes capacities that is being talked about is definitely high but I expect demand in India to keep growing, whether we look at our population or per capita income vis-à-vis other countries. Secondly, lot of coastal refineries will be focussing on export. As for the future market, I can tell you of the jobs I am aware of. HPCL has already announced a new refinery on the West Coast. That will be over 15 million tonnes and they have already asked us to start the preliminary work. HPCL Vizag is also thinking of expanding to 30 million tonnes and has asked us to go the configuration study. Cochin Refinery of BPCL is already out with tender for further expansion. We are also participating in that tender. CPCL is also talking of 10 million tonnes and we are in discussions. These are ones in which we are in talks. There are more existing refineries which will be expanding. For instance layers like Bina Refinery already have some infrastructure like a 1000 km pipeline. They only have to push more crude through that by adding more pumping stations. They even have land. So they will either move to petrochemicals or further expand refining capacities. Sitting in Central India with no refineries nearby gives them the option to expand. So I see no dearth of opportunities for us for the next 4-5 years.

Do you expect the proportion of private clients to increase?

It depends where the investment comes from. If you look at the history of Indian hydrocarbon industry, investment was only by PSUs. The private sector investment came only from MRPL, Essar and Reliance. We were there when the first two were put up. We have offered our services for Haldia Petrochemicals. As we diversify we may have more clients from the private sector.


Friday, August 20, 2010

RCOM's Growth Course.

Reliance Communications (RCOM) reported an unexpected fall in net profit during the June 2010 quarter. The disappointing performance was on account of declining minutes of usage on its wireless network and higher interest expenses. In the near term, operations of the second-largest publicly-listed wireless operator are expected to reel under competitive pressure. Its long-term prospects largely depend upon how well the company carries out its ongoing business structuring.

The company’s operating parameters were rather erratic during the June quarter, compared with the performance of its peers Bharti Airtel and Idea Cellular. These operators had earlier reported continued growth of 3-4% in the minutes of usage per user per month (MoU) on a sequential basis. RCOM on the other hand reported a sharp 7% drop in MoU. MoU reflects the extent of network capacity utilisation and a drop in this parameter means lower network efficiency.

RCOM’s management has cited the reduction of free minutes on its network as a reason behind lower MoU. The company had earlier offered such free minutes to attract customers. In the June quarter, it did away with over half of the free minutes and a further drop is expected in the coming quarters. RCOM’s wireless business president Syed Safawi thinks the reduction would improve the quality of revenue going ahead. It, however, needs to be seen whether the declining free minutes intensifies its subscriber churn, given the highly-competitive nature of wireless business. This may adversely impact future revenue from the segment.

Another concern for investors is the declining trend in its global business, which includes carrier voice, bandwidth, enterprise data and consumer voice services. Revenue from this segment fell by a sharp 30% sequentially during the June quarter. This can be attributed to the recessionary phase in the European zone. RCOM’s management has indicated that the duration of decision-making cycle in this region has nearly doubled to 7-8 months. The situation is not expected to change sooner given the continued economic troubles in the region. The global division constitutes one out of every four rupees of total revenue and hence a slack in its operation will significantly impact RCOM’s topline.

The company is in the process of restructuring its business. To sell its tower business, RCOM has struck a deal with telecom tower company GTL Infrastructure. It is also looking forward to raising funds by selling partial equity. These initiatives should help RCOM reduce its debt burden and also finance costs. At Friday’s closing stock price of Rs 168, RCOM’s enterprise value works out to be nine times its operating profit before depreciation. This comes at a discount to Bharti’s 13 times. Bharti’s higher premium reflects its better revenue visibility in the future given its overseas operations. For RCOM’s investors, the wait is long before the company may see a meaningful turnaround in its operations.


Tuesday, August 17, 2010

Assam Company Q2 net profit Rs. 100 million (10 Cr.)

Total Revenue for the quarter stood at Rs. 383.9 mn and total revenue for the first half of the year stood at Rs. 635.3 mn

Assam Company India Limited (Assam Co.), a Company engaged in Tea plantation, Oil & Gas exploration and production (E & P) and Infrastructure development today announced its results for the quarter and half year ended 30 June 2010.

Total Revenue for the quarter stood at Rs. 383.9 mn and total revenue for the first half of the year stood at Rs. 635.3 mn. Improved realizations in Tea and Oil & Gas contributed meaningfully to the top-line. Operating profit for the quarter stood was Rs. 120.8 mn.

Notional loss on foreign exchange fluctuation in H1 CY2010 was Rs. 33.1 mn as against exchange profit of Rs. 12.7 mn in H1 CY2009. Interest for the current quarter and 6 months has been contained due to improved financial management. Profit after Tax was Rs. 100.8 mn for Q2 CY2010 at a healthy margin of 26%

Performance overview of Q2 & H1 CY2010:

Oil & Gas production have increased following the completion of the dual operation in May 2010
1,700 BOE per day was achieved in June 2010 as compared to 1,200 BOE per day in Q2 CY2009

Realization for the quarter has also improved contributing substantially to overall performance of the Company. Gas Reinjection facility at the Amguri block is nearing completion and the commissioning is expected by September 2010. On commissioning, production is expected to ramp up progressively in the coming months. The 2P recoverable resource of the Amguri block is 60 mmbbls of oil and 229 bcf of gas as per the report received from Sproule International Limited, a recognized body for certifying resources from development blocks. Assam Co. has a 40% participating interest in the Block. Tea production for the quarter had suffered due to excessive and continuous rainfall resulting in lower temperature and unprecedented pest activities

Tea mosquito called “HELOPELTIS” had attacked most of the tea plantations in Assam in the month of May and June 2010. Tea Realization for Assam Co. during the quarter increased on a steady basis on the back of upgraded quality. Average Realization for quarter was at healthy Rs. 146 per kg taking average realization to Rs 127 for the first half of 2010. Higher realization compensated for the lower production in the quarter. Realization is expected to improve further, driven by demand for quality produce

Commenting on the performance of Q2 & H1 CY2010 A K Jajodia, Managing Director of Assam Company India Ltd said:“I am delighted to share that our efforts towards improving production in oil blocks is starting to yield results. Production in the last quarter has enhanced substantially following the completion of dual operation in March 2010. The Gas re-injection facility is also nearing completion and we expect the production to increase expressively after the commissioning of the plant.”Our performance in the tea for the quarter was satisfactory even after experiencing unfavorable climatic conditions in the last few months. We have been able to outperform the market by improved price realization driven by quality upgradation and intelligent marketing. Effects of the rain and the pest attack have worn off completely and production has now been ramped up to normal levels. We believe that we are firmly placed to significantly improve our profitability in the tea segment in coming quarters with better realizations and higher production.”